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• Annual Recurring Revenue (ARR): Grew 12% year over year to a record $123 million.

• ARR as Percentage of Revenue: Represents 29% of annualized quarterly revenues.

• Free Cash Flow: Generated $26 million in the quarter.

• Net Debt: Reduced to $45 million after paying down $25 million of debt.

• Free Cash Flow Yield: Currently at 9%.

• Capital Expenditures: Less than 1% of total revenue.

• Warning! GuruFocus has detected 4 Warning Sign with DGII.

Release Date: May 07, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Digi International Inc (NASDAQ:DGII) reported a 12% year-over-year growth in Annual Recurring Revenue (ARR), reaching a record $123 million.

• The company's solution-oriented approach in the industrial IoT market is yielding quick ROI for customers through remote monitoring and analytics.

• Free cash flow generation of $26 million in the quarter allowed the company to reduce net debt to $45 million, after paying down $25 million of debt.

• Digi International Inc (NASDAQ:DGII) improved its inventory position significantly, approaching historical norms, which is a positive sign for operational efficiency.

• The company expects to be net cash positive by the end of the fiscal year, a one-quarter improvement from its initial goal.

Negative Points

• Revenue has been weaker in the APAC region, which could impact overall growth if the trend continues.

• The macroeconomic environment remains fluid, posing potential risks to steady demand and financial performance.

• The company is experiencing some soft churn, with larger customers closing a smaller percentage of their locations.

• Digi International Inc (NASDAQ:DGII) acknowledges the potential impact of tariffs and the need for agility in response to reciprocal tariffs.

• The software attach rates are still under 50% across the portfolio, indicating room for improvement in this area.

Q & A Highlights

Q: Ron, my first question is on the recurring revenue trends in P&S, up over 20% in the quarter. What operational levers are you using to unlock this growth? A: Ronald Konezny, President and CEO: We are emphasizing providing a complete solution by attaching software and services to our products, improving attach rates. Additionally, we offer a Ventus-type model to customers, allowing them to pay over time rather than upfront, which enhances ARR.

Q: Is the channel becoming more accustomed to driving higher attach rates, or is it due to other factors? A: Ronald Konezny, President and CEO: We are very channel-centric in products and services, and our partners are positively reacting to this model as it helps them build a recurring revenue business.